The US Federal Reserve raised interest rates by 0.75% in June and July to keep inflation under control.
Investors are wondering if the Fed will trigger a third 0.75% hike at its next meeting in September. Some key inflation data was released on Wednesday morning, allowing the Fed to reverse the pace of its tightening.
The Labor Department reported an 8.5% increase in the consumer price index (CPI) in June, up from a 9.1% increase in July. In response to the cooler inflation numbers, the bond market is now pricing in a 37.5% chance of another 0.75% rate hike in September, according to CME Group. Just 24 hours ago, the market was pricing in a 68% chance of a 0.75% rate hike.
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Jamie CoxThe managing partner of Harris Financial Group said inflation probably peaked months ago and is finally showing itself in the headlines in a meaningful way.
“The Fed now has plenty of cover to reduce the pace and magnitude of future rate hikes,” Cox said. There must be a major recession.”
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More rate hikes are coming: While the probability of another rate hike has dropped by 0.75%, the market is still pricing in a 100% chance of a rate hike of at least 0.5% in September. Investors expect interest rates to continue rising until the end of the year.
The market is now pricing in a 46.3% chance that the fed funds’ target range will be 3.5% to 3.75% or higher by the end of 2022. Just 24 hours ago, those odds were 74.1%.
brian priceThe head of investment management at the Commonwealth Financial Network said Wednesday the market now expects inflation to fall further in the second half of the year.
“In light of this report, the likelihood of the Fed raising another 75 basis points seems significantly reduced and we may only see a 50 basis point hike at the next meeting,” Price said. “If energy prices continue to fall, I expect we will see inflation numbers drop in the coming months.”
Gasoline Gas Take: A falling inflation rate is certainly good news, but interest rates will certainly continue to rise until inflation returns close to the Fed’s long-term target of 2%.
Wednesday quick action in TRUST SPDR S&P 500 ETF The SPY is on a jerky recovery rally, but it could still be a challenge for the S&P 500 to make new highs soon.
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